Understanding Car Insurance Deductibles: A Comprehensive Guide

Car insurance is essential for protecting yourself and your vehicle in the event of an accident or other covered incidents. However, understanding the intricacies of car insurance deductibles can be challenging. In this blog, we will delve into the details of car insurance deductibles, how they work, and how to choose the right deductible for your needs. At O1ne Mortgage, we are committed to providing you with the best mortgage services. For any mortgage-related inquiries, feel free to call us at 213-732-3074.

How Do Car Insurance Deductibles Work?

Car insurance deductibles function similarly to deductibles in health and home insurance policies. When you file a claim, the deductible is the amount you must pay out of pocket before your insurance coverage kicks in to cover the remaining costs. For example, if you are involved in a car accident and the repair costs amount to $4,000, and your policy has a $500 deductible, you would pay $500, and your insurance company would cover the remaining $3,500.

Deductibles apply to specific types of coverage, such as collision or comprehensive coverage. However, they do not apply to liability insurance coverage. If you are responsible for an accident that causes injury or damage to another driver or their vehicle, your liability insurance will cover those costs without requiring you to pay a deductible.

Types of Car Insurance Deductibles

Car insurance deductibles are common across various types of coverage. Here are the main types of car insurance deductibles:

Collision

If you finance your vehicle, your lender likely requires you to carry full coverage car insurance, including collision and comprehensive coverage. Collision insurance covers damage to your vehicle resulting from an accident with another car or an object while driving, and typically requires a deductible.

Comprehensive

Comprehensive coverage, also known as “other than” coverage, covers non-collision damage to your vehicle, such as theft or natural disasters. Most comprehensive policies require a deductible for covered events, but not always. For instance, some policies offer a $0 deductible for glass claims, such as a cracked or chipped windshield. Deductibles for collision and comprehensive coverage can range from $0 to over $2,000.

Uninsured and Underinsured Motorist Coverage

Uninsured or underinsured motorist coverage is required in some states but not all. If you have this coverage and are involved in an accident caused by an uninsured driver, your uninsured or underinsured motorist insurance may cover injury and car damage costs. This type of insurance may include a deductible, typically ranging from $100 to $1,000, depending on the state.

Personal Injury Protection

Personal injury protection (PIP) insurance pays for injuries you suffer in a car accident, regardless of who is at fault. This coverage is particularly helpful for covering medical bills, treatments, and lost wages. In no-fault car insurance states, you are required to include PIP in your policy. Some at-fault states also mandate PIP coverage. Depending on your location, you may or may not have to pay a deductible, as some states do not allow them for PIP coverage.

When Do You Need to Pay a Car Insurance Deductible?

You generally need to pay a car insurance deductible on claims for damage to your own vehicle, such as through your collision or comprehensive coverage. Conversely, you do not have to pay deductibles on liability claims for injury or property damage you cause to others.

Depending on your policy and where you live, you may also need to pay a deductible when:

• You file a car insurance claim resulting from an accident caused by an uninsured or underinsured driver.
• You file a claim under your personal injury protection insurance for medical bills or lost wages in an accident.
• You use optional coverage like roadside assistance, which may require a deductible.

Should You Pick a High or Low Insurance Deductible?

Most auto insurance policies allow you to choose a deductible between $250 and $2,000, with some offering a $0 deductible. The most common amount policyholders choose is $500. Deciding whether to opt for a high or low insurance deductible depends on your financial situation and personal preferences. Here are some factors to consider:

• Affordability: How much could you reasonably afford if you needed to file a claim? Would a $1,000 deductible strain your budget? Choosing a higher deductible could lower your premiums, but if it’s too high, it may strain your finances when you need to pay it.
• Premiums: How would your premiums fit within your budget? A low deductible, like $250, makes it easier to handle a claim financially, although you’ll probably pay higher premiums. Ask your auto insurer to quote premiums for different deductible amounts on your policy to find the best balance of premium affordability and reasonable out-of-pocket costs if you have to file a claim.
• Lender Requirements: Does your lender require certain coverage and deductible amounts? Most auto financing companies require you to carry comprehensive and collision insurance on your vehicle, and some also impose specific deductible amounts. Some lenders may want you to carry a lower deductible to ensure you can afford necessary car repairs and protect their investment.
• Car Value: How much is your car worth? Consider the age and condition of your vehicle when choosing a deductible amount, especially if you have an older car. If your car is only worth a few thousand dollars, you might consider dropping collision and comprehensive car insurance, as well as the deductibles that come with it.

What if I Can’t Pay My Deductible?

If you can’t pay the deductible after filing a car insurance claim, consider these options:

• Use your emergency savings: Paying for emergencies like car repairs after an accident is an ideal use of your emergency fund.
• Wait before filing a claim: You may hold off filing a claim until your next paycheck or until you can save up enough for the deductible.
• Get options from the repair shop: Some shops offer payment plans to customers, allowing them to begin repairs while you spread out your deductible costs with smaller payments.
• Cash out rental coverage: Your insurer may provide a cash-out option for your car rental coverage. If you can go without a vehicle while repairs are made, you could receive a payment instead of a rental car, which you could put toward your deductible.

Don’t Forget About Your Credit

Many states allow insurers to use credit-based insurance scores when setting their premiums. These scores use your traditional credit scores and other criteria to determine how likely you are to file an insurance claim. Improving your credit scores may lead to savings.

Start by getting your credit report and credit score for free from Experian to see where your credit stands. Address any issues you find and take steps to improve your credit score if necessary.

At O1ne Mortgage, we are dedicated to helping you navigate the complexities of car insurance and other financial matters. For any mortgage service needs, call us at 213-732-3074. We are here to assist you with the best solutions tailored to your needs.